Japanese Yen Crosses Get Decimated, but is the Sell-off Over? (page 2 of 2)

The moves over the past few days still pale in comparison to the moves in October 1998 where EUR/JPY fell 2,878 pips over the course of a four trading days. Since August 9, from high to low, EUR/JPY is down only 1,526 points. The Chicago Board Options Exchanges' market volatility index (VIX) also jumped to the highest level since 2003, which means that traders in general remain risk averse.

However the late afternoon rebound in US stocks suggests that we could see a similar rebound in the yen crosses as long as the Nikkei does not collapse.

Even if we do see a few hundred pip reversal in the yen crosses, that would not necessarily erase the overall downtrend. Instead, traders need to continue to exercise caution in current market conditions. Big moves like today is one of the main reasons why it is important to use stops and low leverage.

Australian dollar breaks below 80 cents, New Zealand dollar below 70 cents

The Australian and New Zealand dollars were the biggest losers in the currency market today. The Australian dollar is down five per cent against the Japanese yen and three per cent against the US dollar.

The New Zealand dollar on the other hand is down four per cent against the yen and 2.5 per cent against the US dollar.

Both currencies have been hit hard by carry trade liquidation as Mrs. Watanabe cuts her losses. At this point, the loss due to currency fluctuations far outweigh the interest rate gains. In fact, AUD/JPY is one of the only yen pairs to fall more in this phase of liquidation than it did back in 1998.

Overnight, the Australian stock market plummeted as much as five per cent, which was the largest one day decline in seven years. From high to low, the two-day decline in NZD/JPY is the biggest in 22 years.

The Canadian dollar on the other hand has been spared even though international securities transactions were much weaker than expected.

Stronger UK retail sales fails to help the British pound

Liquidation of high yield currencies has sent the British plummeting alongside the Australian and New Zealand dollars.

GBP/JPY had a 1,000 point trading range today and is down 500 points on the day. Stronger than expected retail sales last month did little to help the currency on a day when traders were focused on nothing but for liquidation.

However, if the majors were to bounce over the next 24 hours as suggested by the strong reversal in the Dow, then the British pound could be one of the biggest beneficiaries given the strength of today's economic data.

Euro manages to recapture all prior losses against the dollar

The Euro ended the day unchanged against the dollar, after having recaptured all of today's losses. Unlike the Fed, the European Central Bank (ECB) did not add liquidity to the financial system. So far, the ECB has shown no sign of canceling their planned rate hike in September.